Where to begin

If you are a director of a business which has got itself into debt, you will undoubtedly want to get the company back on track if at all possible. There are several options available to you in order to alleviate the issues, including corporate restructure (via administration) and/or negotiating with your creditors.

However, if the debt is so bad that closing the company becomes the only option, there are ways to avoid compulsory liquidation. Directors and shareholders can have more control over liquidating a company than you might realise.

We have put together the following advice to help guide you through it.

What is an insolvency practitioner?

An insolvency practitioner (IP) is someone who is fully trained to help companies of any type and size with any debt issues they are facing. The IP will work closely with your company to fully understand the gravity of the situation you are facing and will be able to discuss the multitude of options available to you. These can include rescuing the business or closing it in a way that best suits those involved in the company. They will suggest the right recovery or insolvency procedure for your needs, guiding you through every step of the process and offering expert advice.

1st Business Rescue has a panel of trained and highly-experienced IPs who are well-placed to help businesses recover or dissolve in the best way for them.

Closing your business – what are the options?

If your debts are so significant you need the business to cease trading, or simply that you do not wish for the company to carry on, there is one key option available to you – a Creditors’ Voluntary Liquidation, or CVL. As a voluntary procedure, it allows the directors to maintain some control over the closure and can help to minimise further losses to creditors. It is also extremely valuable in reducing the likelihood of any wrongful trading, therefore, protecting the directors.

Restarting your business – what are the options?

If the core business is still viable and would operate successfully as part of another enterprise, it might make sense to free it from creditor liabilities and restart. If this is appropriate in your situation, a Pre-Pack Liquidation procedure might be the best solution. The assets of the insolvent company (oldco) will be sold to the new company (newco), allowing this new business to trade without being encumbered by debt. In some cases, staff and even ongoing projects could also be carried over. This process is only allowed if it is deemed to be in the best interests of the old company’s creditors.

Continuing the business – what are the options?

If the core of your business is viable but overall, it is insolvent, the company might be saved rather than requiring Pre-Pack Liquidation. Here are the options you can take to save it:

Re-financing / Re-structuring

It may be possible to reduce debt by bringing in more investment or capital, which can be sourced in different ways, subject to the business itself. These include invoice financing, sourcing investment, asset-based lending, financial restructuring and consolidation through loans.

Administration

If it’s likely the company will collapse due to creditor pressure, administration can take charge of the situation. It ceases pending creditor action to prevent them from claiming money via more serious channels. This allows the company to be assessed so it can follow the best course of action for it to be rescued.

Company Voluntary Arrangements (CVA)

This is the best solution for companies that look to have a future, but it will require effort from the directors. The company will have to make payments to the appointed IP according to what it can afford, over a specified period of time. The creditors will then receive payments relevant to what they are owed. Once complete, the company is then able to continue without any further debt constraints.

Other debts

The directors can raise questions about the different debts and liabilities associated with the business, e.g., personal liability and debts to HMRC. Here’s some more information:

Personal debts

Any directors of limited liability companies should be personally protected from the business debts, and equally, the business will be protected from any personal debts. This changes if the director has signed a personal guarantee for the debt or if there is an overdraft on a Director’s Loan Account.

Debts to HMRC

If you owe money to HMRC and are struggling to pay it, then a Time to Pay (TTP) Arrangement could help. You will be able to arrange to repay the debt in instalments over a specified period of time rather than in a lump sum. This will enable the company to continue operating by allowing cash flow to continue. These are usually agreed by HMRC if they can see there has not been any long-term mismanagement of the business’s finances.

Bailiffs

Bailiffs are used in certain circumstances to seize assets in lieu of debt repayments not being made. The likelihood of them trying to reclaim your assets specifically will depend entirely on the type of debt you have accrued, with whom and how much. We will be able to discuss this with you.

Next steps

If your company is struggling with debt and you would like to proactively manage it, get in touch with the experts at 1st Business Rescue. We have a panel of licensed IPs and will be able to guide you and your business along the appropriate path in a structured and legal manner to mitigate risks. Contact us as soon as possible to achieve the best outcome.

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